Wednesday, November 23, 2011, AM | 2 Comments
Aah! That dreaded tax season is almost upon us. Many folks would not even want to know that only a few weeks from now, we would be hiding our heads like an ostrich in the sand. But we will soon find that there is no escape from death and U.S. taxes unless, in the latter case, you want to move to a third world country where most folks don’t give a damn about paying taxes to their government.
As I said in previous pages, filing tax returns, for some, is like going to the dentist. If you have flossed once a day and brushed twice a day regularly, then going to the dentist should be a breeze and not something to dread upon. So keep records of all your income and expenses. Figuring out your tax returns should be a breeze as well.
Pay attention to your finances, especially your taxes, during the rest of the year. If you take certain steps, you might be able to save hundreds, even thousands, of dollars on your tax return in the next few weeks.
Most tax-filing software for the do-it-yourself folks are released during October of the year, November at the latest. That means you can start by estimating your taxes. Tax preparation software make estimating your federal and state taxes easy. You can use any of the tax-filing software, whichever you feel comfortable with.
You may look for tax breaks that are scheduled to expire at the end of 2011. Each software package should reflect the impact of the latest tax law changes on your return. On the same token, you may discover tax breaks that you claimed last year have expired, changed amounts or have different qualifications. Importantly, new tax breaks may be available that require action by Dec. 31.
Once you go through the exercise of estimating your taxes, you will find out the approximate amount you’ll be refunded or owe ahead of time. That alone may influence your year-end saving and spending.
If you expect tax refund, you can begin planning how to invest that money. If you have a balance due to IRS, make a payment now or adjust your withholding for the time that you have left through the end of the year so you owe less at tax time.
Following are items to follow during the remaining weeks of the year to save on taxes:
IRS has gotten a lot stricter than ever before about charities. Give only to IRS-approved charities if you itemize deductions. (When you click on the link, scroll down on the page, click on DOWNLOAD NOW, and it will download in your Note Pad. It’s a huge list so takes a while before you see the list of charities.) Receipts, receipts, receipts and nothing but receipts. So help you God. Save your gift receipts when you donate cash, clothes, or household items. Use fair-market value, whatever that means, to determine the deductible value of your non-cash donations.
There are still some energy-efficient home improvements available that you can make before Dec. 31, 2011 that qualify for tax credits. Visit energy.gov for information.
Real estate taxes
If you pay your own real estate taxes (and not your mortgage company) , consider pre-paying taxes due early 2012 by Dec. 31 so you can deduct them on your federal return.
Make your January mortgage payment by Dec. 31 to increase your mortgage interest deduction. Sometime in January, ask your mortgage lender to send you 1098 statement reflecting the extra payment. In any case, deduct the correct amount on your tax return. However, you must submit a statement explaining the difference between your deduction amount and the lender’s statement.
401(k) or 403(b) retirement plans
Contribute the maximum allowed amounts, under the law, to your 401(k) or 403(b) retirement plans.
Conversion to Roth IRA
Convert your traditional IRA to a Roth IRA. The gross income cap for who can convert has been removed.
Year-end bonuses and stock options
Defer income such as year-end bonuses and stock options until Jan. 1, 2012 to decrease your taxable income for 2011.
Consider selling stocks with big losses
If you own stocks with huge losses (on paper), consider selling them in order to offset taxes on gains.
529 College Savings Plans
Your contribution could be deductible, if your state offers 529 College Savings Plans.
Tuition & Fees Deduction
Pay your spring college tuition now if you haven’t yet reached the Tuition & Fees Deduction $4,000 maximum.
Review your federal withholding
Need more assistance?
If you need more assistance and want to read more about your taxes, go over IRS Tax Information for Individuals.
In a Nutshell
Preparing your taxes early will allow you to file your return as soon as you receive all your W-2s, 1098s and 1099s in January or early February. If you owe taxes, you can still file early and schedule payment later (any time before the filing deadline).
Finally, one more time, estimate your taxes by using any of the tax-filing software. Cross taxes off your year-end to-do list and enjoy some peace of mind. It’s a great way to end the year and start a new one.Facebook.com/doable.finance